ETFs Suffer Post Election Wipeout

After a nail biter Presidential election that returned President Barack Obama for a second term in the White House, investors woke up yesterday to the reality that nothing has changed and that the fiscal cliff lies dead ahead.

Much has been written about the fiscal cliff which was created when Congress and the President couldn’t reach a deficit reduction deal in August, 2011. That summer major ETFs like the S&P 500 (SPY) did a near vertical nose dive, and yesterday’s reaffirmation of a Democratic President and Senate, combined with a Republican House of Representatives, spooked investors over the possibly replay of another deadlock with just 54 days to go before the U.S. economy goes over the cliff.

Such a swan dive is virtually certain to generate an immediate U.S. recession as the combination of expiring Bush tax cuts, new Obamacare taxes, suspension of the Social Security holiday and mandatory spending cuts all take place at the same time.

Most analysts still expect a late hour settlement or at least a delay of the cliff into 2013 but, in the meantime, ETF and stock investors are obviously more than a little nervous.

Also rattling nerves yesterday were comments from European Central Bank chief Mario Draghi suggesting that Germany is now starting to be affected by the ongoing crisis in Europe.

Investors also now have to digest which ETFs, stock and sectors are likely to fare well under Obama Part 2.

On a technical basis, significant important ground was lost as the Dow Jones Industrial Average ETF (DIA) closed below the psychologically important 13,000 level and the S&P 500 ETF (SPY) broke significant support by closing below 1400.

The Nasdaq 100 (QQQ) took a serious plunge below its 200 day moving average, down 9% from its mid-September high, and the Russell 2000 (IWM) closed just below its 200 day average, as well.

These two indexes are typically bellwethers on the way up and the way down and so yesterday’s action was definitely bearish.

It was also another ugly, ugly day for tech-darling, Apple Computer, (AAPL) which dropped 3.83% to also finish below its widely watched 200 day moving average. Apple (Nasdaq:AAPL) is now down from its recent high of $702 to close at $558, a haircut of 20.5% to put the world’s largest company into bear market territory.

Many experts suggest that as Apple goes, so goes the market.

Commodities suffered the same fate as equities such as oil (USO) and natural gas (UNG) declined, however, gold (GLD) rose on the prospect that an Obama win would lead to more monetary easing and higher gold prices. President Obama’s policies are seen as being anti-fossil fuel in regards to domestic oil drilling and the expansion of coal use. The coal ETF (KOL) was smacked for a decline of 5.49% yesterday.

Major U.S. Index ETFs:

Dow Jones Industrial Average (DIA) -2.36%

S&P 500 (SPY) -2.37%

Nasda1 100 (QQQ) -2.55%

Russell 2000 (IWM) -2.56%

Gold (GLD) +0.11%

Oil: (USO) -4.15%

Bottom line: Today we'll see the weekly jobless claims report and day one of the new press for a way to avoid the rapidly approaching fiscal cliff. Expect more volatility ahead as Congress and the President duke it out over how to resolve the ongoing deadlock between tax hikes and spending cuts to solve the nation’s budget woes.

Disclaimer: The content included herein is for educational and informational purposes only, and readers agree to Wall Street Sector Selector’s Disclaimer, Terms of Service, and Privacy Policy before accessing or using this or any other publication by Wall Street Sector Selector or Ridgeline Media Group, LLC.